Africa and the Middle East well placed to succeed China as key manufacturing hubs for low cost goods

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Qatar to continue to be the fastest growing Rapid Growth Market

Dubai, 12 June 2012: According to EY’s 2012 Rapid Growth Markets (RGM) Forecast, Africa and the Middle East are well placed to succeed China as key manufacturing hubs for low cost goods. The report also predicts that exports from Africa and the Middle East are poised to grow by more than 12% over the next decade.

Bassam Hage, MENA Markets Leader, EY, says: “While China is still very competitive, rising wages are opening up opportunities for Africa and the Middle East. With a fast-growing labor force, they have the potential to become the next world assembler, possibly replacing China, as China specializes in higher-value added goods. But for this to happen there will need to be an investment in infrastructure and the continued fostering of entrepreneurship. RGMs need to look at China and learn from its fostering of small and medium-sized companies which have identified and captured gaps in the market and driven the growth of China’s export market.”

Qatar still leads the pack
Of the 25 Rapid Growth Markets, the Middle East and North Africa (MENA) region countries include Qatar, the UAE, KSA and Egypt. Qatar will continue to be the fastest growing MENA RGM at 7% in 2012, largely due to expectations of robust government spending and exports focused on Asia, while Egypt will be the slowest growing at 1.2% in 2012 and 3.5% in 2013 with downside risks.

Trade patterns
Technological advancements and the process of industrialization in the Middle East and Africa will lead to metals, chemicals and other “intermediate” goods becoming an increasingly important part of their exports as they seek to position themselves in the global supply chain.  Exports to Russia from the region will show significant growth of close to 12% per year from sub-Saharan Africa and 14% from the Middle East and North Africa (MENA) region.

A seismic shift in trade patterns with the advanced economies is also expected as they have increasingly been looking to RGMs for trade opportunities. Europe’s exports to Africa and the Middle East are currently around 50% larger than its exports to the US.

RGMs prove resilient despite slowing in growth
While the global economy is still in an uncertain state and trade flows remain subdued, the 25 rapid-growth markets (RGMs) worldwide are proving resilient. RGMs are expected to grow collectively at 5.3% this year, bouncing back to 6.3 % in 2013. They are expected to account for nearly half of global growth in the next ten years, with emerging Asia leading the way at an annual average growth rate of 7%. The Middle East and North Africa (MENA) region collectively is expected to grow at an average of 4% but growth in the region could be stronger.

Boom expected in intra-RGM trade
The increase in the middle class in RGMs, particularly in Asia, will drive growth in consumer demand and trade flows between RGMs. For instance, the number of households in China with a real disposable income of US$30,000 to US$50,000 will increase from 1.6 million in 2010 to an estimated 26 million in 2020.

As a result of changes in the costs of production and rising consumer demand, it is the trade between RGMs that will see the fastest growth over the next decade. Flows of goods from China to India are expected to grow by an impressive 22% per year over the next decade. Businesses will need to adapt their strategies to the new challenges and opportunities presented by these changing patterns of trade.

“The outlook for the MENA RGMs in the medium term is optimistic. In addition to the rise in oil prices benefiting the region, non-oil activity is likely to remain strong especially with the steady labor force growth. Government spending and the increase in trade between RGMs, will serve as significant catalysts to growth and, in turn, be hugely beneficial for companies that invest in these markets,” concluded Bassam.